Understanding Behavioral Strategies for Investing and Financial Success

 Rick, thank you for being here. I'm excited to have you on the podcast to help listeners become masters of behavioral investing. But before we dive into the subject, tell us a little bit about yourself and what sparks your passion. I am an independent financial advisor here in Dallas, Texas. I've been in the business for a very long time. I do not claim to know everything. However, I do know a lot. And I'm happy and proud and really, it turns me on, it kind of lights up a flips a switch inside me to help people shine lights in this black box of area called their money that they may not be able to see. And when people can see that, we're all living with blinders in our eyes. I mean, Me included and other aspects of our life. And when we're able to kind of open and expand the spectrum of what's possible, we can make better decisions. We can make better decisions with our money. And when we make better decisions with our money, our money is headed in a, in a direction that's more towards our future and not somebody else's. So I've been doing this for a long time and I love helping and supporting people with this very, very important, critical aspect of their lives. I love serving, you know, people as well and getting them excited about the little area I do. And then I do as well. I always look for other people to support me in the areas I don't know very well. So I think it's very important you said that. So, we're talking about Behavioral investing and investing is foreign, as you've already alluded to, and scary to many individuals. And so they begin to form their beliefs centered around headlines. The stories are shared from family, friends, coworkers. So what do individuals truly need to know about investing? When it comes to long term investing, it may sound strange. However, the key to any successful long term investment strategy or long term results with a long term investing path is not investment selection. That doesn't mean it's not important. It is important. We mustn't forget and ignore that part. However, I would argue that 90 percent of it. It happens after that, and that's our behavior. The actions that we take or we don't take, once we have a plan in place, is what will translate into the results in our life. How large our retirement pot of gold will look like, what our balance sheet would look like, what our, what our debt looks like, what our retirement goals look like. etc. is all really down to our behavior. And when people, people realize this and recognize this, it is so, it should be so, so what's the word? It should be very enriching. It should be very liberating. Is the word that I'm looking for because the great news is that's completely under your control We cannot control what inflation is going to do this year We cannot control what's going to happen in this part of the world or or what the gdp is going to be for this country And in 2025 those items are completely out of our control We don't know what the next nvidia is going to be right, but we can control You What we do as people, what we do as individuals day in and day out, it all comes down to those actions, those daily actions, and those daily actions that are not driven by fear, not driven by heightened emotions. When was the last time that You made a great, great decision when you were freaked out. The answer is probably never. And we don't want to be in that heightened state of anxiety when it comes to very important and what can be sometimes irrevocable decisions when it comes to our money. So doing the finance part of people's lives on your own, there's, there's nothing, there's nothing wrong with that. There's no rule against that. There's not a law against that. And many people go down that path, and that's perfectly fine. Yet, I would just ask people to take a look at the results that they're creating by doing that and assessing and wondering, gosh, I wonder, is there something better that I could be doing here? And many times, a third party from the outside in with no emotion involved, that's able to shine that spotlight. in the area and help right the ship and or help bring you off the ledge can be a tremendous savior in a time of need. Yeah, it's very important to have that external party who isn't necessarily tied to the outcome other than they do want to do good and help you and get you moving forward. So I know when we connected you mentioned something about some great killer mistake. So let's talk about those so people can recognize maybe if that's what they're leaning in towards and then like, what is a pivot for those mistakes? One great killer mistake is fear. I mentioned that word earlier, fear, fear that whatever's going on in the world, that this is a brand new disease that we've never seen before, and it will turn our economy and economic system and the ebb and flow that we've always seen of growth and recession and growth and recession, Up on its upside down and now we're going to be living in a brand new world that no one has ever experienced before. There have been countless world events looking back at history that people can peg. They may not remember it, although let me bring this to one's attention. How many world events happen, a pandemic, a pandemic, a technology crash in in 2000 wars, different presidential administrations, inflation at 9%, inflation at 14%, you, you name it. There have been always unique periods of time of world events that would cause us as people to believe, wow, we've never seen something like this before. Therefore, the way the world turns is going to be completely different. And we need to What have been tried and true tested strategies, throw them in the trash can and replace them with something completely different. And when, if a person did that, looking back, that would have been a huge mistake when we're fearful that whatever this new world event is, if it's a new president that got elected, if it is, who's going to be, Who's going to be in charge of, of the, the Fed, or what interest rates are going to be, or what's the price of oil going to be, when we start to go down the rabbit holes of, this is something that we've never seen before. In other words, this time it's different. Those are the most four famous, dangerous, Words in long term investing history, right when we start to adopt policies based on that we get into big trouble So fear is huge Huge mistake and it's easy to feel fear. It's i'm not saying don't feel the fear as Humans, we you would not be human if you didn't feel fear We're all fearful of the unknown when we when the unknown when we're facing an unknown It's natural to feel that fear and that's completely okay You Where the problem occurs is when we start to take action on that fear, when we start to take action towards that unknown or towards some kind of predicting moment that we think or that we feel is going to happen, and it just really doesn't. This is why reading the news and and paying attention to headlines and Making investment decisions based on what we see on those headlines can be such a high risk Very dangerous dangerous strategy. It makes us feel better because it's our subconscious at work. I, I, this is my opinion. I could be completely wrong. I, I don't want to badmouth the news. It's important to stay in touch with the world and what's going on. That's for sure. I'm not saying don't do that. However, it's our subconscious wanting to pay attention to the news to see What is going wrong with the world because that's what the news does is broadcast what's going wrong with the world. Our subconscious wants to know what the dangers are out there because our subconscious wants to protect us. from harm. It wants to keep us alive and it wants to keep us safe. And this is what drives us as humans in my view to pay attention to the news and to adhere to news headlines as if what is happening is also going to directly affect us somehow. And when we start to feel that as if that's a sword headed in the direction of our chest, we want to do something to get out of We want to take a completely different radical action to to protect ourselves. And when that happens, gosh, that can really be causing a problem. And as an advisor, and perhaps you can appreciate this yourself as a coach yourself, we don't want our clients to be reacting in those knee jerk fashions, because looking back, that's always been the wrong thing to do. Yeah. I don't know how many times in my, you know, previous working and I'd hear individuals say, Oh my gosh, it's going to tank the stock market. So I'm going to go, you know, go to their 401. And they changed to very conservative and I'm like, Okay, but that, you know, they're still invested. They didn't completely pull out. But I'm just like, that's not the right reaction. And, you know, like you said, subconsciously, and we do things to protect ourselves. So what can somebody, you know, think like mindset wise to do instead? How can they set themselves up for success? If they've experienced fear, I would write down these three key principles to keep handy to keep in your back pocket to keep near and dear to the heart. Write these down on post it notes, put them on your refrigerator door. So this visible in front of you and the three key principles are faith. This again has nothing to do with investment selection. This is the great news because you can completely control these three, three key principles. Faith that whatever is going on in the world or how wild it might be, how horrible it might be, how destructive it might be. Have faith that we as a world, we as a country, we as an economy, we as a society will figure it out. That we will overcome and over, overpower whatever evil might be going on, whether it be a recession or high interest rates or high inflation or whatever the case may be. Have faith that whatever is happening will be resolved and that we will come out as economy, as a country, a better, stronger one. This is really the only conclusion that one can come to as you take a look at the historic record. It's the only one that squares with the record. In the face of of of travesties and hardships and and tragedies We've been able to figure out solutions and overcome them In fact, we've become a stronger better place to live and when that happens Brand new industries are created our standard of living today Is incredible. I was born in 1964. I I celebrated my 60th birthday a couple of months ago. When I take a look at my standard of living when I was a child, compared to today, when I was born, I think the median average price of a home may have been, I don't know, 50, 000? Today it's 500, 000. Today I can run a business. from anywhere in the world on a device that's no larger than the palm of my hand and an internet connection. I couldn't do that 60 years ago. When that happens, many other things like this happen, but when this happens, our standard of living goes way, way up. And when our standard of living goes up, Our results go up. Our lives go up. Our lifespans go up. Principle number one, Is is faith that we'll be able to overcome what's happening. So when we have faith, it's it's not easy It's simple though when we have faith that the temp the the devastation whatever it is is temporary Then that will help us as long term investors. The second principle Is discipline? Discipline. Do, not steer off the path. Be disciplined. Do not look for the next shiny object that might appear to be the solution to the problem. We don't want to have that. We don't want to have that. So when we're able to be able to be disciplined, then we're in good shape. And then just be loyal. Be loyal to the plan make sure that what you set up matches with your risk tolerance Yes matches with the goals that you have in mind It's not there's nothing that's a crystal ball that when things have worked in the past odds are They will work in the future. So when we have these three principles in place, they're not the sim. They're simple to follow, but they're not easy. And that's many times when you can use a coach like yourself or some other advisor to help you along the way. Yeah, those are great principles. I mean, those can work in any facet of life. So, yeah. You know, it's, the other one I wanna add is patience. You know, there's, we want things to happen and with money so fast. And financial journey just isn't fast, so we have to be patient and just watch for the little progress. So Talking about behavior, which I think is so number one, so interesting as a lot of, you know, individuals just talk about how to invest. And like you said, risk tolerance. And while that is very important to learn for yourself, owning that risk tolerance that you've set out there is, is also key. But you also talk about taxes. as being a, let me find where my notes are. Okay. So you talk about tax management as being a landmine and that it can be a co pilot of an often misguided approach. And I know I hear taxes a lot from people. I got to pay tax. I got to pay. Yeah, we do. So speak to that just a little bit. What I mean by that is it's important to pay attention to taxes. I like to do that as an advisor, not to be blind to that. I want to be tax savvy as much as possible. I want people to pay what they're supposed to pay. Yet at the same time, I'm not a fan of tipping the IRS. Also, right? So some people I see this goes to behavior in my view Some people I see are so driven by the objective of paying the rock bottom most Minimal taxes as possible and they begin to consider if not incorporate very extravagant tax strategies and tax avoidance strategies That frankly in my view are just not worth it They're not worth the headache. They're not worth the trouble. So when people are Assessing how can I minimize my taxes as much as possible? Sure I'm on board for that yet. If it's such such a high level priority Fine, you can explore all the other potential Tax minimization strategies as possible yet. Do not forget The return on hassle of those strategies. Okay, they may drive your tax, tax liability down to nothing. Yet what was the cost for doing that? Are you creating a brand new monster in your life that you didn't have in your life in the past? Now you have it. Now you have to maintain it. Now you have to keep it going. There's a time element with that. There's a cost element with that. Well, at least I paid no tax yet. I now have this brand new brother so to speak In my financial life that I didn't have before that i've got to keep this relationship with so just be aware Of like I said the return on hassle with any tax strategy, especially the elaborate tax strategies that you might consider Just for that comforting emotional feeling of, Hey, I'm not paying any tax anymore. So good to be. tax savvy, but not overdrive to creating a whole different beast. I do like that. Everyone's got their balance when it comes to all this, and not everyone's balance is the same. So as working with coaches like yourself, that helps you assess, gosh, should I be messing with this or not? Does this make sense? Gosh, it does make sense. I didn't know about this. Let's go for it. Gosh, this does make sense. I didn't know about it. However, Does that mean I have to continue to this and this and this and this and this for the rest of my life? Or for the, or for an extended period of time? Gosh, I'm not sure if that outweighs the value of the benefits of this. So when you have a second set of eyes looking in, in your situation and circumstances, that can help you make a better decision. So important. Alright, so in your experience, what steps can people take to develop a stronger behavior based approach to investing that focuses on long term rather than the immediate market? I know you talked about principles, but is there something more strategy focused? I know we're talking about behavior, but more strategy focused? Well, I would, I would take a look at the actions that you take. That's where it comes down to where your financial results. Take a look at your balance sheet today. Take a look at your, your tax return. Take a look at your income. This is not a comment that's right or wrong. It just is. Numbers are what they are. There are, there are a product of the actions that we took yesterday, last week. last year, five years, ten years ago, and when you assess your results and if you like your results and if you're pleased with the results and the trajectory of those results, that means you need to continue to do these same activities and avoid the other ones. If on the other hand, you are Assessing this and noticing, gosh, I, I feel a gap here. I should be doing better than this. Then to me, that's a sign that something in the daily activity needs to change. Either something needs to be removed and replaced by something better or vice versa, whatever it is, I don't know what those things are, but if people consider this a strategy. Act as if you have an imaginary video camera up on the, on the wall videotaping you and your money actions every single day. And at the end of the day, at the end of the week, at the end of the month, you get to press play and watch that video and only you watch that video, no one else. Will you be happy with what you see? Okay, well, you'd be happy to see another way to put this is our I like to put it this way and this can really not have a resonating effect with some people are you treating your money as if it's a family member take a look at your relationships that you have with your loved ones. Your spouse, your boyfriend or girlfriend, your significant other, your close family members. Why are these such special relationships? And why are those relationships in harmony and joyful and growing? It's because you're giving tender loving care to them. You're giving attention. You're, you're giving those love languages to those people that are fostering and fertilizing the strength and vibrancy of that relationship. Are you doing the same type of activity with your money? And with your pocketbook, that might, that might sound strange on the surface. I'm, am I suggesting that you find your purse or you find your wallet and you go out to dinner with it at a very nice Michelin restaurant? I don't know, maybe, maybe if that's what, that can help shake up the activity. That's the kind of tender, loving care that I'm suggesting that people have when it comes to their finances, because when we, when we fertilize our gardens, we grow flowers. And when we don't fertilize our gardens, we grow weeds and we don't want weeds with our money. Yeah. It just, it made me think of, there's a lot of individuals who come to me or reach out and they're like, I'm scared to look at my money and typically it's a reaction that they've done, right? They've made themselves safe from something that had happened one time. And so they're afraid to look at it. And that is so true. It just is building that initial relationship of looking at it every day. That's no different with your investments. Although. With your investments, you're not going to want to take immediate action, whereas with your day to day finances, we want to be more quickly. And that's the difference between the long term growth and the short term happenings. So yeah, so key. All right. Before we finish up, Rick is there one action step you would love for listeners to implement today to have better behavior with their investing? And take a look at how you're spending your money for those who are not going through the exercise of tracking where their money goes. I would suggest that that could be the best seed that you can plant today when you line up and identify. And this is very easy to do these days with technology. It's never been easier. To do this download those transactions Into an app or into some way or some formula or some system that works for you And see where your money is going and then perform an exercise that I will call financial jenga You list all of the expenses that you've been spending this month next month the next month and Voila, you will see wow. I didn't know I spent so much on And when you identify, let's call them these sore spots, then you can, like the Jenga game, take these expenses out and replace them or redirect these expenses into that retirement account. Into that college account for your kids into that emergency fund, whatever the case is. So for those who are saying, well, I don't have any more money to save or invest. I'll bet you can find more money to save and invest. When you go through an exercise like that. Well, I don't want to go through that. That feels kind of uncomfortable. It's kind of inconvenient. Yeah, I understand that. But that's, that's what it takes to have better results in life. We're not talking about, you know, eating pizza and taking a nap here. We're talking about doing things that may feel uncomfortable, but that's the only way to create better results in our life, is to do those things that don't make us feel so great sometimes. Yeah, I like that. I ditto that as well. So Rick, where can listeners connect with you and find you and reach out? My website is Salmoronfinancial. com. Look me up on social media. Check out my name in LinkedIn or Instagram for those looking for what I call these mini light bulb moments. I like to send all of my posts in a manner that makes you think differently about your money one way or another. So hopefully that can help change your behavior to improve your money. So follow me on social media too. I love that. Thank you for Rick for that. I will have all those links down in the show notes and listeners. We'll see you next week. Thank you.